Onthe 7th of October 2013, Ford celebrated the 100-year anniversary ofits moving assembly line, a revolutionary invention which would change the fateof mass production for decades to come. As CEO James Hackett rightly suggeststhe firm continues to use ‘the spirit of Henry Ford as a benchmark’ for itsfuture endeavours. We start with Ford as our initial example as it is truly theembodiment of a multination enterprise, when we look at reasons for firmsbecoming multinationals, one of the key driving points is lowering total costs.

By setting up operations close to their foreign consumers firms can eliminatetransportation expenses, allow subsidiaries to handle their products and aid inresponding to changing consumer demands. If we look to Ford this has beencompleted on a remarkable scale, the firm has main geographical divisions inthe Americas, Europe, Middle east, and Africa with a VP heading each division.Global supply chains have become increasingly popular among MNE’s due toliberalisation in international trade (EU single market, WTO) fuelled by ‘technologicaldevelopments which have ‘lowered transportation costs’ (Rugman., 2011).By forming subsidiaries in foreign countries such as Ford Australia, MNE’s caneffectively aim to maximise the total profit after tax, as (Lys, 2015)aptly states tax payments are often the largest expenses of a firm.

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This isreferred to as ‘tax-effective supply chain management’ (Kim et al, 2018).Hencethis form of offshoring by Ford allows for reduced costs and an ever-increasingexpansion of its business. In response to MNE’s offshoring some governmentshave taken to reducing their current rate of corporation tax in order toattract more firms and stimulate the local economies providing much         neededforging direct investment ( FDI ), this “tax competition “is reflected in therecent trend in which MNE’s switch their production to nations withconsiderably lower tax rates ( China , Vietnam, India) compared to developedcountries (Agrawal, 2015).

Accordingly , the merit for a MNE’soffshoring are not only the lower production costs but also a tax reduction .Keeping on the topic of lowering costs as a reason for firms transitioning toMNE’s, firms regularly practice outsourcing in pursuit of lower supply /labour costs.The Chinese subsidiary of Hyundai Motors, a South Korean company, receives itscomponents from a Chinese supplier instead of its factory in Korea for thelowered cost (Kim, 2011).Diversificationis protection against ignorance, hence firms become MNE’s to tap into thegrowing world market for good and services. Tata Motors Limited is a part ofthe Tata Group with a market capitalization of $100BN, it is composed TataSteel, Tata Motors, Tata Consultancy Services, Tata Communications, Taj Hotels,Tata Chemicals, Tata Power, Tata Global Beverages, and Tata Teleservices. TheMNE’s success is due to its use of Outward Foreign Direct Investment ,essentially the firm would acquire and lease existing production facilitieswhich would aid its production of new products and goods (Leigh, 2011).

During the 60s and70s there was huge amounts of optimism surrounding product diversificationwhich was consistent with the massive diversification programs undertaken by aplethora of firms in the time period .Framed within this view was the linearpremium model (Benito?Osorio, 2012),the model suggested that the level of diversification is linear and positivelycorrelated hence the benefits received via high levels of diversificationoutweigh the costs therefore most diversified firms outdo their non-diversifiedcounterparts.  This method of expansionand growth can also backfire in some cases, if we look to China most observerswill state that Chinese firms are quick to expand into sectors and diversifytheir enterprise, fuelled by the robust economic growth and cheap labour coststhese firms quickly grow.

There is a plethora of empirical evidence toaccompany this, in 2006, there were more than 100 Chinese automobile producers.These firms introduced 102 new models in 2005 alone. Currently, only five ofChina’s 31 provinces do not have their own assembly plant (Fan et al., 2008),now according to western data the minimum efficient scale ( lowest point atwhich a firm has its long run costs minimized) for a car production centre isat the 250,000 mark however due to the aggressive expansion of domestic firmsand rapid diversification of product lines the Chinese average stands at ameasly 150,00 and while demand continues to skyrocket prices have declined bymore than 20% in the 2003 to 2005 time period . Whilethe 60s and 70s saw the dominance of US multinational firms extending theiroligopolistic powers to foreign countries, the 80s and 90s acted as a catalystfor Japanese and European firms creating a new competitive environment aptlynamed the ‘globalisation of competition’ (Kotabe, 1989). This new competition mandated a globalshift in corporate strategy, previously for firms looking to become MNE’s, inresponse to increased foreign competition and protecting their home market share,they would resort to a polycentric approach in which they would recruit thehome talent for their managerial positions; this was the modus operandi.

In response to the co-ordination and integration ofoperations across nations, several approaches to this global strategy have beenformed such as Kogut’s global value-added chain paradigm and Porter’s globalconfiguration/co-ordination paradigm (Kotabe, 1989). The key reasons forthese shifts in global stratagem were that firms looking to becomes MNE’sunderstood that various corporate functions such as R&D, manufacturing andmarketing needed to be coordinated in a  wayto allow the firms to take advantage of both firm’s competitive advantages andthe comparative advantages of various countries in pursuit of a higher  global market share (Robinson, 1987).Thepursuit of greater global market share and growth, in response to increasedforeign competition , is necessary for firms becoming MNE’s. (Ohmae, 1985) stresses the needfor greater global strategy stating that with the rising disposable incomes inthe ‘Triad Regions ‘ ( United States, Western Europe and Japan where 13 percent of world population live and consume some 80 per cent of world productionfuelled by rapid economic growth). If we look towards the Indian Pharmaceuticalindustry, it is the largest supplier of low-priced anti-retroviral in theworld, and exports medicines to over 200 countries. Government policies havehelped the country build an excellent manufacturing capability, which helps inmaking available essential medicines.

The Patent Act of 1970 allowed domesticfirms to manufacture products, which until that time were manufactured only byforeign firms (Iyer, 2012).In the 90s theIndian government increased the approved FDI limit to 74% in 1997 allowing arush of foreign firms entering or re-entering the Indian pharmaceuticalindustry. Thechanging extent, influence, and geography of MNE activity over the past twodecades is itself a reflection of a series of revolutionary technological,economic and political events. But internationalization is not a “one sizefits all approach”, firms will always have different motives to go global anddo it in the way that best suits their business models. Whichever method acompany adopts, it will subsequently go through a sustained learning process andincreases its knowledge throughout the process.

Internationalization andglobalisation has indeed become the need of the hour for companies to sustaintheir businesses in the long run and develop company’s strategic andorganizational capabilities. That isn’t to say that becoming a MNE is alwaysthe optimal outcome, as shown in examples above occasionallyinternationalisation can be a firms largest downfall.

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